Nightly Briefing 6/11/20

Nightly Briefing 6/11/20


Corrections come in all shapes and sizes. Sometimes they are fast and quick other times slow and orderly over 5-10 days. This is nothing more than a profit taking event, which we anticipated would occur sometime after the Fed meeting. We expect a sharp rebound to take hold as early as tomorrow and Monday at the latest. The first dip after a long trending 3 month move will always be bought barring a bad binary event which we do not have. A strong rebound in price can be seen into the middle of next week. After that bounce, another wave of selling is likely for those that think the rally is over. All stocks ultimately will be met with a higher close for the month into June 30th. In our estimation there will be even higher prices into July. The Fed just telegraphed its position yesterday saying "rates will remain at or near zero into 2022." Let us pose a question: If you are one of the high profile banks or hedge funds not currently invested in this market, where are you going to place your capital? Clients don’t give you money to return 2% from cash or treasuries. Don’t even consider saying short the market. Not one of them would go against the Fed who said they have QE infinite to fight this economic slowdown. Forget bonds - with rates at zero and likely moving higher, pressure will be put on their pricing. They are going to piece back into this market buying the Nasdaq, semiconductors, biotech, and other lagging sectors (restaurants). The President’s Treasury Secretary has stated numerous times - as recently as today - "the economy will not be shut down again." We feel that is your most significant risk as an investor. Between the Fed, President Trump, and Treasury Secretary Mnuchin, a floor has been established in the stock market. If you have a long term portfolio it is wise in our opinion to accumulate on dips like these.


Big funds care where the market finishes the quarter. Clients evaluate their progress via their statements, which are dispersed on a quarterly basis. BLMN is 95% institutionally owned by all of the biggest names on Wall Street (#1 holder BlackRock). Expect them to add a little more to their positions into the close of the quarter. Just another pattern we have observed over the years in certain sectors.  At the end of the month, you will hear from the mainstream press that restaurant stocks are being bought because the economies of the USA have all re-opened. Follow the money. 


Market Making 101

BLMN and DENN were beaten up today because on large rallies, like the one we just had, market makers sell/short shares they don’t own to fill orders. If there is no news behind the rally, they will short more aggressively knowing the buying frenzy will end and die down and they can buy back shares cheaper in the coming days. If they get caught with a big press release after they are short, they simply double their position size near the extension of the next rally and raise their cost basis. They can “bully” a stock like BLMN and DENN and use their endless capital to do so. At 7:30am they started selling in the premarket to scare retail and damage the charts. BLMN and DENN both had great 3-day runs where they moved 4 points each. End-of-week short-covering is coming so there is a good chance you can expect to see some tomorrow in the afternoon. Many restaurant stocks are so undervalued that they can rise in a sideways market in our opinion. These are two great names to hold long-term.

Green today and an explosion upward is close.





HFZ



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Important Disclosures: Investing in the financial markets can involve considerable risk, including loss of principal. Past performance is not necessarily an indication of future performance.  Actual clients may achieve results materially different from the results portrayed.  All material is for informational and educational purposes only and is not investment advice and is not meant to suggest that any securities are suitable investments for any particular investor.  All information reflects our own actions, beliefs, and processes for purely informational purposes. HEDGE FUND Z LLC IS A FINANCIAL BLOG FOR THE SOLE PURPOSE OF EDUCATION.  HFZ does not represent themselves as acting in the position of an investment advisor or investment manager for funds that are not under their direct control and fiduciary responsibility. 

 

Third party quotes and information may not be representative of the experience of HFZ customers and do not represent a guarantee of future performance or success. Many of the results displayed on our website were achieved using leverage, such as 2x or 3x leveraged ETF's or equity options 

 

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